Old Age and Survivor's Insurance

Rescinded 1984

The X Corporation permits its employees on request, under certain
circumstances, to be paid earned vacation allowances for a period during
which they are unable to work because of sickness or accident.
Held, such allowances are vacation pay rather than sick pay and are
wages within the meaning of section 209 of the Act.

The X Corporation has a written sick-pay plan or system for its salaried
employees, which provides for payment of certain amounts because of
absence due to sickness or accident for a maximum period of 26 weeks. For
its hourly-paid employees, the corporation makes payments to a private
insurance company for a group insurance policy which provides for the
payment to such employees of weekly benefits for sickness or accident
disability for a maximum period of 26 weeks, beginning after the first 7
days of such disability.

Both salaried and hourly-paid employees are also eligible for a vacation
allowance in any calendar year if they meet certain requirements involving
length and continuity of service in the previous year. An employee meeting
the requirements thus has an earned right to a vacation with pay or a
vacation allowance at any time after January 1 of the vacation year.
Ordinarily, vacations are scheduled for a definite period between April 15
and December 31 of the vacation year. However, on request both salaried
and hourly-paid employees may, while absent from work because of sickness
or accident, be paid any vacation allowance for which they are then
eligible. When so requested, the vacation allowance may be paid during the
7-day waiting period of hourly-paid employees or after an employee's sick
leave is exhausted, or prior to his retirement on a disability pension.

Section 209 of the Social Security Act provides, in pertinent part, that
the term "wages" means remuneration for employment, with certain specified
exclusions. Subsection (b) of section 209 excludes from wages any payments
made on account of sickness or accident disability to or on behalf of any
employee under a plan or system established by an employer providing for
such payments. This exclusion also applies to amounts paid by an employer
for insurance to provide such payments. Vacation pay, however, is not
excluded from wages by any provision of the Social Security Act; and
Regulations No. 4. §404.1026(b) expressly provides that vacation
allowances are wages.

Thus section 209(b) of the Act excludes from wages the payments made to
employees of the X Corporation under either its sick-pay plan for salaried
employees or the group insurance policy for hourly-paid employees, and
excludes also the payments made by the X Corporation to the insurance
company. On the other hand, vacation allowances paid to employees for
regularly scheduled vacations are wages.

The question to be decided is whether a payment for earned vacation leave
which is paid during or for a period in which the person is unable to work
because of sickness or accident is an extended sick leave payment (i.e.,
sick pay excluded from wages) or an accelerated vacation payment (i.e.,
vacation pay which is wages). If such payment is wages, it may be used in
determining a person's eligibility for, and the amount of, benefits under
the old-age, survivors, and disability insurance program. Also, if it is
wages, it must be counted as earnings for deduction purposes under section
203 of the Act. On the other hand, if such payment is not wages, it may
not be counted for either benefit or deduction purposes.

Under the vacation plan of the X Corporation, an employee who meets the
eligibility requirements has an earned right to a vacation with pay or a
vacation allowance at any time after January 1 of the vacation year. The
fact that the employee elects to receive such pay for a period during
which he is unable to work because of sickness or accident disability does
not change its nature as vacation pay. Moreover, the payment is not made
because the employee is sick and therefore absent from his work, but
because he is entitled to the payment as a vacation allowance without
regard to his sickness. Thus, the payments in question are vacation pay
and, therefore, wages.

Accordingly, it is held that vacation allowances paid to an
employee of the X Corporation, even though paid for periods in which he is
unable to work because of sickness or accident disability, are wages
within the meaning of section 209 of the Act.

Important Information:

Other Government Websites:

Follow:

External Link Disclaimer

You are exiting the Social Security Administration's website.

Select OK to proceed.

Disclaimer

The Social Security Administration (SSA) website contains links to websites not affiliated with the United States government. These may include State and Local governmental agencies, international agencies, and private entities.

SSA cannot attest to the accuracy of information provided by such websites. If we provide a link to such a website, this does not constitute an endorsement by SSA or any of its employees of the information or products presented on the non-SSA website.

Also, such websites are not within our control and may not follow the same privacy, security or accessibility policies. Once you visit such a website, you are subject to the policies of that site.